By Abraham Dayan
Not an easy time for the retail jewelry industry in the United States seems to be a fairly accurate representation of the state of sales in the first months of 2017 at least. That's according to financial results reported by Signet Jewelers, the largest jewelry retailer in the United States which also operates in Canada and the United Kingdom and thus gives a view of the state of play in those markets as well, and Tiffany & Co, which gives an insight into the higher end of the retail jewelry sector.
Ironically, the economy was supposed to receive a boost from the election of President Trump, which analysts said would be good for business. The delays in pushing through a national budget by the Trump administration, however, have created a degree of uncertainty. In addition, geopolitical shocks and the haphazard way the administration has been seen to be managing its operations have done little to instill confidence in consumers at home and abroad.
Signet's results in late May had an immediate effect on its share price which dropped more than 3 percent as a result. The jeweler missed earnings estimates for its fiscal first quarter, with net income plunging to $78.5 million in the quarter to April 29 from $146.8 million in the year-earlier period. Sales dropped to $1.403 billion from $1.578 billion. The picture was made clear by the same-store sales (SSS) results which are a critical indicator of the state of retailers. The decline there was 11.5 percent. Analysts' consensus figure was for sales of $1.469 billion and a much lower same-store sales decline of 8.3 percent. Signet's comments that there was an "unfavorable impact attributable to the later timing of Mother's Day holiday," undoubtedly has some truth to it but nonetheless the results overall were poor.
At its Sterling Jewelers division, SSS fell 12.8 percent due to declines across merchandise categories. Although the average transaction value increased 3.7 percent, the number of transactions plunged 16.6 percent. Higher-priced bridal jewelry as well as select diamond fashion jewelry and brands outperformed lower-priced merchandise.
The picture was similar at Zale Jewelry, where its SSS fell 12.7 percent. Again, the average transaction value increased – rising 2.9 percent – while the number of transactions plunged 16.9 percent. Like the Sterling division, broad declines across merchandise categories drove the SSS decline, and higher-priced bridal jewelry and diamond fashion jewelry outperformed lower-priced merchandise.
In the UK, Signet Jewelry's SSS decreased 3.5 percent. Average transaction value increased 12.4 percent but the number of transactions dropped 14.4 percent. The SSS decline was driven principally by lower sales of jewelry offset by higher sales of watches. Strong sales of prestige watches drove average transaction value.
Signet management is clearly trying to move to improve its performance overall, particularly in Internet-related and social media issues, as well as changing management and putting more of an emphasis on omni-channel operations. Mark Light, Chief Executive Officer of Signet Jewelers, said, “As anticipated, we had a very slow start to the year as continued headwinds in the overall retail environment were exacerbated by a slowdown in jewelry spending and company specific challenges. We continue to take decisive action to adapt our business to the current challenging retail environment and to position our company for long-term growth. Importantly, during the quarter, we made significant improvements to our online platforms and continued to accelerate our digital marketing efforts which resulted in a measurable sequential improvement in our e-commerce performance. We also made important changes to our organizational structure and strengthened our team to drive our 2020 Strategic Vision and deliver operational efficiencies. Based on the progress we achieved to date on our Customer-First OmniChannel strategy and with a number of initiatives underway, we expect Fiscal 2018 results to be within our previously-announced guidance range.”
Meanwhile, the financial results reported by Tiffany & Co. for the three months ended April 30 stood out for their lackluster performance. Worldwide net sales increased by just 1 percent to $900 million due to growth in the Asia-Pacific and an increase in the wholesale sale of diamonds. But, net earnings were up only slightly – to $93 million compared with $87 million a year ago – while same store sales were 3 percent down on the prior year.
In the Americas, total sales of $392 million were 3 percent lower than the prior year and comparable store sales declined 4 percent. Management attributed the overall sales declines to lower spending by both foreign tourists and American customers.
And results in other areas of the world were hardly better. In the Asia-Pacific region, total sales of $257 million were 8 percent above the prior year, while comparable store sales declined by 3 percent. In Japan, total sales of $128 million were 2 percent below the prior year, and comparable store sales declined 1 percent. Management attributed the sales declines to lower spending by Chinese tourists. Meanwhile, in Europe, total sales declined 3 percent to $94 million and comparable store sales also declined 3 percent.
Another indication of the rough time the jewelry chain is experiencing was that not only did Tiffany did not open any company-operated stores in the first quarter but actually closed three.
As with Signet Jewelers, Tiffany is also attempting to move quickly to boost its strengths and eliminate its weak positions. Michael J. Kowalski, Chairman of the Board and Interim Chief Executive Officer, said, "While these results modestly exceeded our near-term expectations, we are focused on executing long-term strategies to achieve stronger and sustainable performance through product introductions, optimization of our store base, effective marketing communications and the delivery of experiences that resonate with our customers. In so doing, we believe Tiffany & Co. is well-positioned to generate an attractive total shareholder return over the long-term."
